Inside Saks Global's Four-Month Bankruptcy Sprint

0:04Geoffroy Van Raemdonck: Hi, this is Imran Ahmed, founder and CEO of The Business of Fashion. Welcome to a special bonus episode of the BOF podcast. It's Tuesday, May 12th. Earlier today, BOF published an exclusive in-depth interview with Saks Global CEO Geoffroy Van Raemdonck, examining the company's strategy as it expects to emerge from Chapter 11 bankruptcy next month. For over a century, Saks Fifth Avenue represented a manifestation of American aspiration, a luxury icon whose flagship on New York's Fifth Avenue served as a vital crossroads for the global fashion industry. But even the most storied institutions are not infallible.

0:49Geoffroy Van Raemdonck: On January 13th, the newly formed Saks Global, parent company of Saks, Neiman Marcus and Bergdorf Goodman, filed for court-supervised restructuring. Saks Global's crisis was largely self-inflicted. The acquisition of Neiman Marcus, coupled with slow payments to vendors, resulted in a deepening inventory crisis. As debt obligations mounted and cash reserves dwindled, Saks fell further behind on vendor payments, prompting suppliers to freeze shipments. Without new merchandise to sell, revenue plummeted, trapping the retailer in a terminal liquidity crunch. It was caught up in a downward spiral that left its industry reputation in tatters.

1:35Geoffroy Van Raemdonck: Now, just four months into Chapter 11, Van Ramdonk is leading a turnaround effort to salvage Saks Global's reputation and restore trust with its customers and the wider industry. In this special episode, BOF's retail editor Kathleen Chen and I sit down with Van Ramdonk to unpack his plans for a big turnaround. What's important in a business like ours is to be focused on your core business. We only exist to serve the luxury customer and to be a gateway for the luxury brands to that customer. Anything that makes us stronger and that we should do, anything that deviates from that, is a dilution of our efforts and a dilution of what we are best at.

2:21Geoffroy Van Raemdonck: Here's Geoffroy Van Remdonk on the POF podcast.

2:28Geoffroy Van Raemdonck: Joffre van Remdonk, welcome to a very special episode of the BOF podcast. I am here with my colleague, our retail editor, Kathleen Chen, and we have been looking forward to this conversation for some time. So thank you very much for joining us. Thank you, Imran and Kat. It's a pleasure to be with you today. There is so much to discuss, but I did want to start with the restructuring. You know, a bankruptcy process is something that you know from your time at Neiman Marcus, but many of our listeners and our community don't understand exactly how a process like this works. So in the first instance, what I thought we could do is just kind of walk through the process and what you've been through so far.

3:18Geoffroy Van Raemdonck: I mean, my first observation is that you've been in bankruptcy for less than five months and it looks like you'll be out of that process quite soon. How did you move that fast through the process? And just walk us through the steps that you've had to go through within that five-month period and how you managed to do that, I think, more quickly than some people suspected. Well, Imran, it's actually less than four months. We are on our way to four months, so it's actually gone really, really fast. I think you get in a financial restructuring when you have liquidity issues. And that's really what this business had.

4:00It didn't have liquidity. It had liquidity challenges last year. And as a result, it didn't pay the brands. And ultimately, the brands didn't ship. And that accelerated the downfall. And so when we file on January 13, we then get into a court process that provides flexibility and tools to make decisions. It's a moment where you are going to, through the process, change ownership and erase all the debt that you had before. And I think we went fast for a couple of reasons. First and foremost, we got access to 1.2 billion of new liquidity, which we've received. And we've secured another 500 million of liquidity that will be provided at emergence, which we believe is in the beginning of the summer, because our confirmation hearing is in the next month.

4:52And what we then did is really be laser focused on two things. One was restore the trust with the brands, because if you don't have inventory and if you've not been paying brands, then your business is on a standstill. And so we worked with all the brands and with many of the brands, we were able to pay for a portion of what we owed them pre-petition. And that's called Critical Vendor Program. Overall, we worked with more than 500 brands and 46 % of those are small and independent brands. So it really covered the brands that were the most important to our future. And as we reestablished relationships with them by paying some of the pre-petition amount owed and then committing to pay and you have to pay according to terms during the bankruptcy, we saw the inventory flow back.

5:46And so if I look at the end of Q1, we receive 102 % of the inventory we had bought and expected. So that's allowed us to get the business going and to get a flow of revenue. And therefore, as we buy and pay the brands, we generate more cash, which will help for the purchase of the following month. And the second thing is we really focused on using the tools that are available during the bankruptcy to make sure this business becomes profitable and grows in a profitable and sustainable manner. Neiman Marcus pre-acquisition by Saks Global was a profitable business. It had half a billion more operating income than Saks Global.

6:31And Saks business model was more focused on growth than it was on profitability. And so we've now focused the business on the core. And the core is serving the luxury customer through retail and experiences. But we've removed all the effort that we had on real estate, development of properties. And then we've taken very sharp and measured but deliberate decisions to right size or footprint of stores. So go forward, we have 15 Sachs, 33 Neiman, and one Bergdorf Goodman. These are all in the markets where the luxury customer is present. All those stores are profitable and really speak volume and attract a large group of customers.

7:16We've decided to exit the off-price and outlet business. So we've kept 12 stores that are there for liquidation of end-of-season products, but no purchase for outlets. And that business was not profitable for us. We've downsized to two newly re-outfitted distribution centers on the East Coast and in the Central. And then we have a small distribution center on the West Coast down from seven distribution centers. We've exited from contracts that were not core to our business or not advantageous to our business. And we've last week right-sized our corporate team to make sure that we invest in the capabilities that drive growth and make sure that this organization is lean and agile and can make decisions fast.

8:05And that's really what's allowed us to be where we are. In parallel, we've developed a plan, which is called a plan of reorganization that explains what our business plan is. And we can talk more about the views of growth over the next five years. But it also explains who's going to own the business post bankruptcy? How are we going to settle with the creditors that have not been receiving payment for pre-petition? And last Friday, the court approved the disclosure statement that accompanied that plan of reorganization. And now we started this week to solicit votes. And that is really the last step before emergence.

8:48The votes are being solicited. We know we have the support of the Unsecure Creditor Committee, which includes many of the luxury brands. And we know we have the support of the main creditors that will be the future shareholders. And the next milestone is June 5, where the judge is going to confirm the emergence. And then it's a matter of a week or two to get all the paperwork and all the details in place.

9:13Geoffroy Van Raemdonck: Okay, so that's a bankruptcy process encapsulated in just a few minutes of description. It's a lot of work. But I'm sure you'll agree there's quite a lot more work still to get done. And one thing I just wanted to double click on for a moment was the original rationale for this merger between Sachs and Neiman Marcus. And clearly there were expectations of synergies. And I believe, there was about$200 million in synergies already realized in the first year of the merger. And there's been some reference to the company carrying a lot of costs not linked directly to retail operations, but linked instead to real estate and development activities and other unprofitable lines of business, some of which you've just mentioned.

10:07Geoffroy Van Raemdonck: What didn't work so far in the way the merger was originally conceived? So I think the one thing that actually did work quite well was achieving some of the synergies. So the first year, there were 200 million of synergies that were realized in year with a run rate closer to 300 million. And so I think from a synergy standpoint, it actually worked quite well to take the costs out and to refocus on the areas of the business, where one of the two companies was doing it better and shared the best practices. I think what was challenging is some of the integration of systems became difficult. And last August, we had challenges as we were processing and receiving inventory that added to the liquidity issues.

11:01And then the other thing that really straddled this business is that there were a lot of expenses that had nothing to do with serving luxury customers. So I'll give you one example. We were paying 55 million of rent every year for Lord & Taylor stores that were closed and had no hope to reopen as Lord & Taylor because that business was liquidated. And so you carry costs that really have no impact and value to the customer. But because we own the real estate, the promise was if we keep paying the rent, the rent went to pay on the mortgage on those properties, there was a hope that you could realize the value of the real estate.

11:42But the real estate is only valuable if it's occupied by a credit worthy tenant. And so these elements that are a loop that is not linked to the retail, I think is part of what straddled the business and made it difficult to really operate. I think what's different today is that we've taken an additional cost out. And what's most important and different today is that we have ample liquidity to buy and fund buy products, pay the brands and fund the operations, which then is the way to draw, drive profitability and ultimately reinvest in your business.

12:19Geoffroy Van Raemdonck: So interestingly, if I understand correctly,$55 million of rent was effectively being paid for historical Lord & Taylor real estate that was just not being deployed as a store. And it was the bankruptcy process that enabled you to kind of shed some of this legacy cost structure out of what was a real estate business. It's exactly that. And in a way, we benefited from some of it because we are partial owners of some of the properties. There was always the potential upside of capital gain and selling, and some of those properties have been sold at high price. But the timing of realizing the real estate upside was much longer than anticipated and was taking immediate cash flow out of the company.

13:12What's important in a business like ours is to be focused on your core business. And so you'll hear me talk a lot about devotion to the luxury customer. We only exist to serve the luxury customer and to be a gateway for the luxury brands to that customer. Anything that makes us stronger and that we should do, anything that deviates from that is a dilution of our efforts and a dilution of what we are best at.

13:40Geoffroy Van Raemdonck: So Geoffroy, I know you've been through a bankruptcy process before, which I mentioned earlier. during your time as CEO of Neiman Marcus. But even with that experience under your belt, I'm curious in the last four months or so, what has been the hardest challenge for you to navigate and how did you manage to get through it? So I think the hardest challenge is probably, there's two of them. One was to reestablish the trust with the brands. and brand had gone through a long period of time of delayed payment potential deadlines that were shifted and so there is a lot there was a lot of btsd and i think part of coming back and coming back with the team part of the team that was with me at neiman marcus group was to come and instill that confidence.

14:39And it took time to just talk to everyone and hear everyone out and tell our vision and explain to everyone the bankruptcy process, explain to everyone that we had funding committed and explain to everyone that we were going to actually have a critical vendor program that allowed us to pay some of the pre-petition claims. And I think that is really something that you can't really measure. And you can only successfully do it if you talk one person, at a time and you get everyone comfortable. Now, we did achieve that because none of our 200 brands, top 200 brands have left us. I actually don't know of any brand that has left us.

15:19And we received all the inventory we wanted to receive for the quarter, but that took enormous effort. And I have to say, in return, we received enormous support from the brands because the brand quickly started shipping again, quickly started recommitting. And if you look at some of the events, we had events with Loewe for the launch of the first collection in New York that was an exclusive launch and neither us nor them moved away from that investment and commitment. So there was incredible response. But to me, that was not something I took for granted. And while I wasn't there for the moment of disappointing the brands.

16:02I fully own how we remedy that and how we rebuild the confidence. I think the other challenge is that you're in a moment where you're in a court supervised process. And the beauty of that is that there is a process and it's supervised. And so it brings rigor to everyone. As a CEO, it means that there's a lot of decisions that I can't make because they're regulated by the code and other elements. And that's unusual. And so it's a protection for all of us, including for the company. But it's a constraint because usually as a CEO, you operate within a framework that is not court regulated.

16:42Geoffroy Van Raemdonck: What kind of decisions might you have wanted to make that the court process prevented you from making at this stage in the process? So there's a lot of decisions that you need to get approval for. So the approval to hire people, the approval to continue to fund the pension, the approval. So there's a lot of things that we did on day one motion that were there. But there's a lot of other things like providing severance that are complex and more difficult under bankruptcy than what we would have done if we were not in that context. Before we move on, I do want to get into the brand relationships topic, but just one more thing on the kind of restructuring and bankruptcy process.

17:28Geoffroy Van Raemdonck: Just for the clarity of our listeners, as Saks Global emerges from this process, who will now own the company? How does that affect your ability to make long-term investments? and what expectations are there from those investors about how you provide a return on the like$1.75 billion that they're injecting into the business to keep it going? So the future owners is something that is going to be approved by the court. And until it's approved, it is not finalized. But the future owners, as defined by the plan of restructuring that you've submitted are a group of former lenders led by two hedge funds, Pentwater and Bracebridge, that own the vast majority of the debt and therefore will, according to the plan, become the majority owners of the business, alongside with a couple of other investors that were owning the debt before.

18:38I think it's really interesting to look at the fact that these groups invested and lost money out of their investment, but continue to invest because they're the one who've committed additional funds. So we've received half a billion dollar of funding from them. We've received 240 million from our ABL, which is our revolving line. And then that group of lenders is going to commit another 500 million at emergence. So to me, the way it's looking is that we will be owned by people who have a vested interest in the success of the business. And they've demonstrated that they're committed to the business.

19:19All of the money that we receive from them, a big part of it went to the critical vendor program, which is really ensuring that we maintain those relationships with critical vendors and that we keep them for future. So I think we are on the path to be owned by shareholders who understand this business. They're unnatural shareholders. And I think ultimately the path that we'll be seeking and the path that I'm committed to support is to find long-term owners for this business. There is no rush because they're happy to fund the business and the business has a plan to grow its liquidity and grow its profitability.

20:03but ultimately we will be seeking long-term owners.

20:08Geoffroy Van Raemdonck: And what would the characteristics of a better fit long-term owner be? Like who are the types of parties you would imagine that could be? I think you can find multiple types of owners for a business that has such a long history and is so part of the American social tissue and is the gateway to the luxury customer. And it's actually the best proxy of the luxury market. So there's always the path of an IPO. And then you are the proxy of the U.S. market. And there's no luxury brand in the U.S. that are the barometers of how well are the U.S. luxury markets doing. So that's one. There's always different type of strategic owners.

20:53And then you have sovereign funds or private equity funds that invest in transforming and reimagining a business model. And this business model, while functioning profitable, is primed for continued reinvention. And as we've discussed in the past, we brought technology at the service of human at Neiman Marcus Group. That is something we're going to continue to do. And I think over the next couple of years, I would expect that there's vast benefits to do so. And so the pool of interested parties is large. And the beauty is that there's no urgency for us. Our plan calls for being profitable this year in EBITDA and cash flow positive next year.

21:40So we can continue to fund the business and grow it for the foreseeable future.

21:46Geoffroy Van Raemdonck: Okay, well, that's a good point now for me to hand it over to Kat. We've understood that there's been quite a large charm offensive with some of the big brands that have occupied Saks, Neiman Marcus, and Bergdorf Goodman. But I think Kat wants to ask a little bit about some of the smaller brands and what they contribute to the kind of ecosystem of luxury within the kind of Saks global universe. Thanks for the handoff, Imran. Yeah, Jafwa, I've, you know, had the chance to speak with a number of your brand partners and Saks' former brand partners, and most of them were emerging independently owned brands.

22:28So far, Saks has made such amazing progress in onboarding hundreds of vendors back onto the matrix. But I'm curious to you, what is the importance of discoverability, the importance of working with and maybe even cultivating some of the smaller brands that might not have been critical vendors, but still play a really vital role in getting shoppers, young shoppers into the store? the mix of brand and the diversity of brand is very important because if you think about our customers starting with the devotion of the customer the customer likes brands that have broad resonance that have incredible notoriety but they also love to discover something that is new exciting that has such a bright potential and that is really the texture that we bring to our customers.

23:27And when we look at moving the customers to be more and more loyal, when we look at increasing their frequency, it's often those smaller brands that create the asperity and the loyalty. And so that is a very important part of our relationship with the brands. As a business that is a portfolio of brands, and when some brands will do better than others in different times, we're always looking for the next generation. And so if you look at today, you know, top 10 brands, you'll see Christian Louboutin and Brunello Cuccinelli that started their business in the US that were early brands in their journey and were very, very small.

24:06Brunello Cuccinelli met with the team at Neiman Marcus at Petey when he didn't have a store and he was not widely distributed. And then you accompany those brands and today those brands do more than 100 million with us. and they're globally very big and the US market account for a disproportionate high part of their business. So we're very, very focused on European brands and obviously a lot of the American brands that bring what our customer is really looking for, a unique point of view on fashion and a unique voice. And so that's really important. And I recognize that during this process, it's been difficult for the smaller brands.

24:49Their financial needs are different and the unpredictability of us paying or not paying put a real strain on those brands. I'm excited that as we emerge and as we have more than 700 million of liquidity, very low debt and a business that would be cashflow positive, we can again be a partner that is stable for them. And then all growth is going to benefit the industry because we buy from those brands and we are an avenue of growth for them so an important part and more work to do because as I mentioned earlier every brand deserves personalized attention and we need to get to all the brands to get them comfortable with our future and then it's really figuring out how do we tackle the future because there's so many pockets of growth in categories based on fashion, where some brands are really hitting it right.

25:47We're always also looking for a lot of exclusivity. So if you look at Goyard, it's a brand that is only available at Neiman Marcus. If you look at Van Cleef & Arpels, it's only available at Neiman Marcus or Saks Global. If you look at Schiaparelli, the only points in the distribution in the US are with Neiman Marcus Group and now Saks Global. And so that is also important that we provide the support and often the brands decide to then become exclusive to us to strengthen that desirability and exclusivity. And Geoffroy, to follow up on what you mentioned earlier, which was that a portion of the bankruptcy liquidity went toward pre-petition claims, and that helped bring in revenue.

26:34Is that typical in a bankruptcy process to earmark some of that funding toward pre-petition claims? It's available in all bankruptcies and it's usually an opportunity that the debtor takes. We decided that it was very important given the amount that we owed and it was very important given that we are so much in a relationship business. And I think it was a big commitment from the lenders because it's not something you're obligated to do. It's something you choose to do because you believe it's strategic. And for me, it was very important that we rebuild that strength and that we, one way to rebuild the strength is to make do some of what was owed.

27:19And then the other thing we've done is we pay according to term and we pay exactly on time, if not a couple of days earlier, because the notion of being one day late recreates the question of the trust. And as soon as you are consistently on time or earlier, you really have a pattern of trust. And so it is available and it is usually used not to the extent and the amount of money that we committed to the program.

27:48Geoffroy Van Raemdonck: So Geoffroy, now is a good moment to maybe talk bigger picture. And over the last few months, as you and I have been having private conversations, as you've been thinking through this process, one of the things that we've touched upon a lot is the role of the U.S. luxury market in a troubled luxury sector. With the current crisis and war in the Middle East, a challenged global market generally, a China market that's not growing nearly as quickly as it was, say, five or 10 years ago, the U.S. luxury market has become a real focal point for brands. And what does your customer data tell you about this U.S.

28:36Geoffroy Van Raemdonck: luxury customer and the resilience that we're seeing in the results as all the big luxury groups are reporting their quarterly figures? We're seeing that the U.S. comes up over and over again as a key market opportunity. How do you explain that resilience and what is that customer looking for? Great question, Imran. If I go into the data, we conduct a survey, which we've done for the last five years, quarterly, with luxury customers. And what came out of it is that 76 % of the luxury American customers said that they felt optimistic about their personal finance. And that was up 11 % compared to November.

29:17So the perception of how well they feel for the stability of their finance and their wealth is improving. We saw that 57 % of the customers said that they would buy equal or more in the next three months, which suggests that the appetite to engage in luxury is increasing. And then when we asked the question around, are you looking to buy full price? this was at an all-time high for what we've been surveying in the past. And so to me, it reflects this notion that the U.S. market is strong and resilient. I think the luxury customer and the high-end luxury customer is very much influenced by their wealth and the stock market much more than by the GDP and the employment level.

30:04And our economy is a strong economy. I think beyond that, there's also something that the U.S. customer who engage in luxury is very loyal. And we find that when they enter luxury and we see that when they're new to us or when they enter luxury early in their life with the next generation, they stick to it. And yet there's still a big part of the American population that is a part of the high net worth individual that are not participating in luxury. And so to me, that resilience and potential for more growth is really there. I was recently visiting brands in Europe, and you can all see that they're performing for the most part better in the US than the rest of the world.

30:48And when you ask them, where is the avenue of growth, it's resoundingly the US market. And to me, it really is for the optimism and the enjoyment that that luxury customer has to participate and consume luxury.

31:02Geoffroy Van Raemdonck: It's interesting because when you look at the U.S. market, and historically, if you look at the U.S. luxury market, recent growth has also been driven by entry-level customers, aspirational customers. And the same dynamics that you're talking about at the high-end customer level are almost reversed for a kind of entry-level customers. We saw during COVID, you'll remember from your days at Neiman Marcus during that challenging period, there was stimulus checks and excess money in people's bank accounts that allowed all sorts of new customers to enter the market or participate more actively in the luxury market than they were previously.

31:46Geoffroy Van Raemdonck: that dynamic is simultaneously switching while the high end remains resilient it's those entry level customers that were providing a lot of dynamism and growth for the luxury market and not just in the u.s but everywhere in the world that part of the market is much softer now and much less resilient like how do you see that evolving in this current kind of what people some people are calling a K-shaped recovery. And so I think there's two elements there. There's a little bit of a K-shaped recovery from the economy and some of the part of the population feeling more of a pinch than the ultra high net worth individuals.

32:28But then there's also, I think, customers who enter luxury and would come back and will come back if the product has the value it's supposed to deliver. And I think by increasing prices, non-comparative to the value that was provided, literally same product at a higher price, we've actually pushed out some consumers because they're either priced out or they recognize that this is not the value they're receiving. And so where we see also, when I look at the brands that are doing the best, they're the brands that bring incredible fashion and newness that is true to their own brand DNA. And that congruence is really important.

33:12I see it when we have brands that bring products that have the right level of craftsmanship and design and offer the value. And that value is not the nominal amount. It's literally, what am I receiving for what I'm paying? And I think as the brands, and we're seeing it now in the fashion weeks, have a lot of new creative directors. They're redefining the essence of their brand. I think we have an ability to bring some of those customers back who will engage but need to see that they're getting something that is really worth the word of luxury.

33:48Geoffroy Van Raemdonck: And does that also present an opportunity for brands that are sitting slightly below the kind of pure luxury level? I mean, what we're observing and we've been following at BOF for some time is this whole new cohort of independent brands that are delivering luxury level products and design, but not at the same prices that some of the big European players have been proposing to customers, creating this like very interesting opportunity. There's a huge opportunity there. And that is, frankly, where a lot of the American brands play. When you look at the Rosen Group, his brands are beautifully designed, beautifully made at a price point that some of the European luxury brands have vacated.

34:37I think it's the Tory Burch space. And we're seeing great growth there. And some of the best brands we have were very small five years ago. And so the ability to establish yourself and understand where the consumer is going, which is a blend of functionality and unique design. I think that's where we've seen not only growth, but also the biggest delta between the brands that are capturing more of their fair share and some that are shriekings. And there's some brands that were relatively big five years ago that have really diminished drastically. So that is the more vibrant and changing part of the business.

35:21And I think that's there to continue to be there. And it's interesting, those brands for us, they attract the entry price bond of a luxury customer, but they also are best customers. Also comes very often for contemporary brands because it gives them something to wear every day. it gives them a frequency of purchase that is different from some of the other luxury brands. So I think it's a very important segment for industry and our customers. One thing that we had been covering before and leading up to the bankruptcy was the opportunity for Saks Global's competitors. I think retailers like Bloomingdale's, MyTheresa, they've been able to gain some share when Saks was struggling with these vendor issues.

36:09Geoffroy, what is the plan in winning back some of that market share and becoming a more viable competitor to some of these other retailers in the space? So I think there's a lot of retailers in the space. They all have a place to be and all have a positioning that is very valuable. Where we are is we are really the leader in luxury multi-brand because we have access to a customer who buys luxury and wardrobe. And so I don't think we've lost a lot of customers when it comes to the true luxury customer. When we look at our top customers, we've actually seen them spend more per transaction last year than the year prior.

36:50And when we look at our top sellers, they sold equal last year than they sold the year before. Where there has been a decline for us is in more of an entry price point customer, more in the beauty category, and in customers that were not really loyal. And so for me, if I answer your question about what is our role and how do we establish and realize the full potential of those three historical banners, it is really to continue to serve the luxury customer and recruit more of them. So I give you a little bit of a sense of who our customers are. So almost 60 % of our customers spend more than$5 ,000 a year with us.

37:33So they really engage either in the average ticket price or in the frequency in a high level of value with us. And then if I zoom in, 40 % of our business is made by a customer who in average spend$36 ,000 a year with us. There are very few luxury brands that will tell you that they have 40 % of their business that comes from customers who spend an average$36 ,000 a year. And there's none of the competitors in the multi-brand retail that are achieving those numbers. And we retain 90 % of those customers. And I think the reason being and where I see us play a unique role that we do well, but we will do even better is that we have sales associates who build that relationship.

38:24And that relationship usually is a physical relationship. It's always a human relationship. And then it happens in stores and with remote selling. We've got 1 ,500 sales associates who sell 2.8 billion of revenue a year. That's about 1.9 million each. And they're all selling more than a million. And so there's a group of associates who really know the customer intimately, build the trust, and are devoted to customers. And in return, those customers create a business for them. I mean, a 1.9 million sales associate in size of book is the size of many luxury stores in the mall. And so that is really the business that we have.

39:12And again, none of the competitors have that. And we've seen a turnover of those sales associate of 2%. It's a little bit more than 2%, which is more than what we would have had in the past. But it's still very minimus when you think about 2 % of 1 ,500 sales associate. And when you look at the ultra high sales associate who sell more than$5 million a year, their average tenure with us is 15 years. And so to me, that is the business that we are in, is the business of relationship and the business of luxury. When someone is in a relationship, and we define relationship as shopping three times with the same sales associate, so it's not a huge hurdle.

39:54then those customers spend 16 more times than the customers who are not in a relationship.

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41:50All right.

41:50Geoffroy Van Raemdonck: So now I'd like to turn to a key strategic question, which in my conversations with your colleagues and peers, Geoffroy has come up over and over again as a strategic choice that you've made as leading the company through the bankruptcy, which I must say, a lot of people in the industry don't fully understand. So I'm hoping that you can illuminate us with your thinking. There has been some question around the rationale for keeping three separate banners. You mentioned the three banners earlier. I can understand why keeping Bergdorf Goodman is absolutely essential, given it is a single destination, clearly differentiated proposition linked to its prime positioning in New York City, with kind of global visibility and brand recognition.

42:46Geoffroy Van Raemdonck: But when it comes to Saks Fifth Avenue and Neiman Marcus, the differentiation between those two banners is not as clear to the market. One retail expert I spoke to a few months back, he said to me that any time that he has seen retail brands combined combine but maintain distinctive banners, it always results in a consolidation because it's too expensive, too complicated, and too time consuming from an energy and focus standpoint to try to maintain too distinctive banners that are ultimately selling the same kind of experience, the same kind of brand mix. In your situation, that's further made more complex by the fact that You have shared buying teams, if I understand correctly, behind Saks Fifth Avenue and Neiman Marcus, which then raises the question, like, how do you keep the differentiation if even the buying teams have been consolidated?

43:51Geoffroy Van Raemdonck: So that's a lot to unpack, but it's a critical strategic question. I'm curious to understand how and why you've decided to maintain both Saks Fifth Avenue and Neiman Marcus as separate brands. So you've heard me talk about devotion to the customer. We're following what the customer is telling us. So when you look at cities, and there's seven of them, where Sykes and Neiman are in the same mall, or in Beverly Hills where they're across the street but on the same side of the boulevard, the overlap in customer in numbers is between 11 to 15%. So in places where, if your statement is accurate, the brands are selling about the same things, the customer feels very differently.

44:39And they believe that they are a Saks customer or a Neiman customer with some of them because the product assortment is different, choosing to shop both. And so to me, that is really what's driven us to say, when we look at where are we going to keep stores, it turned out to be, let's keep the stores where the luxury customer resides. And that's in the big cities. It's sometime in the big and exact same mall because the customer is indicating to us that they perceive these two banners very differently. And I think what's different from what other experts may have seen is that all banners exist for more than 100 years.

45:21And they've been engaging with customers in their own way, with their own positioning. The customer at Saks is a customer who enjoys fashion and really looks in Saks for inspiration and validation and guidance. The customer at Neiman Marcus in general is a customer who has a lifestyle of luxury and participate in luxury in fashion, but in travel and other elements and really engages with Neiman as part of that lifestyle. And then Bergdorf is the pinnacle of luxury. And these customers often are also art collectors. And so the positioning has been different historically and the consumers have seen them differently.

46:05I think the challenge that you're putting out is one that I'm taking on very seriously, is how do we continue to differentiate? Because now that we are not competing in the marketplace, but that we are under an umbrella, the idea is to differentiate them more so that customers actually could overlap in some cases to say, I go to Neiman for this and I go for Saks for that. Or we create even more stickiness that customers say, I'm a Neiman customer because Neiman is this way and Sachs is that way. And so the differentiation is very important. We've made the choice that the buying can be done together for the benefit of a shared inventory if we decide to share it.

46:48But then we can also control the differentiation because we can decide that this is what we buy for this banner or this store specifically, and this is what we buy there. And so by putting it together, we take control of the differentiation. where we have more work to do, and that was not started pre-petition, is differentiating the voice, the positioning, the imagery. And I think we can do much more there. There's a lot of material because the richness is there, but we are really at the beginning of that. And this has been a process, and you said it earlier, it doesn't happen overnight. Part of what the industry should expect is a greater differentiation over time.

47:28Geoffroy Van Raemdonck: So that sounds like a lot of complexity to manage and navigate in the coming months and years. Because the devil's advocate would say, Geoffroy, that yes, you might have a loyal Neiman customer and a loyal Sachs customer, and there's very little overlap between the two of them, even if they exist in the same mall or on the same street. But if you closed one of those locations, and you and I had this conversation back in Paris many years ago, if you closed one of those locations in a way that that luxury customer in that specific geography wouldn't really have any other choice. And you would have all the benefit of having all the customer data and information about those customers to win them over to the single banner.

48:15Geoffroy Van Raemdonck: So do you think it's worth all of that complexity when you're trading off the potential profitability upside that certainly your very profit-minded owners and your goals for future ownership under either an IPO or kind of smart, aligned, long-term investors, everyone's going to be really looking at the bottom line. You really think it's worth that? That complexity is worth that trade-off. I do. And we had long conversation. And you can imagine that when you are aiming to be a profitable business and your shareholders want you to be profitable and growing, We put a lot of scrutiny on this internally and with the future shareholders.

48:56I think there's two things that convinced us. One is, if you just look at the sizes of the stores, and there's seven of them that are in geographies where we overlap. There's many markets where we close one of the two. These stores are all significantly above$100 million in revenue. And so it is impossible to fit that level of business and the brands are not fully represented, duplicated into one destination. And so we believe that we were going to really disappoint customers, disappoint brands and actually leave business on the table in a place where these stores are profitable. Obviously, in some cities, when one of the banner was significantly bigger and significantly more profitable, and that is the case in Boston where Sachs is significantly bigger, and it is the case in other places like Chicago where Neiman Marcus is significantly bigger, then it really made sense to combine the two.

50:00So that was the main thing. We looked at store by store and rationalized it that way. The other element is really history. When you look at places where Sachs and Neiman existed, and Denver is an example, and Sachs left, we saw a minimal increase. And when Barneys closed, we didn't see an influx of all those customers. And it is really the counterintuitive math. So I think there's a math there in retail to me that is not logical. And it's the same math that when you renovate a store, usually when you operate in a temporary store or half the store in construction, you actually do equal or better.

50:42And so that is just experience. But we really looked at it at the store level and believe that the richness of the relationship the customers have was worth it. And I think the complexity, it is complex to differentiate the banners. To me, it is much more efficient to do it as a merge entity where you choose what brands you buy and where you assort them. You choose which customer you engage with what message as opposed to two organizations that were really not very efficient in how they were going to market to best serve the customer.

51:21Geoffroy Van Raemdonck: Well, let's turn now a little bit to the kind of go forward strategy. I'm just curious about the department store model in general, which is something that we haven't touched on yet. You just now listed a bunch of names of department stores that are no longer around, Barneys being one of them. We mentioned Lord and Taylor earlier. I mean, I think this moment also offers you a unique opportunity to say, well, how should the department store model be reinvented? You know, it's something that people have talked about for a long time. But what is your take on how things might change once you kind of get the regular running of the merged business humming along according to your projections?

52:05Geoffroy Van Raemdonck: Take us a bit into the future. Like, what is the role of department stores? You've said that there's more that we can do with technology, but what are you thinking that this evolution of department stores will look like? So my answer will be the one we can provide today, which is we don't have it fully fleshed out, but we have a vision of what we want to achieve. I think the first is that I fundamentally believe that there's a reason of being for multi-brand retail, especially in luxury. And I think first and foremost is that the brands want access to that customer and they don't have that access because they don't have the sales associate who knows the customer and can wardrobe the customer across brands and across categories.

52:51and if I give you a sense or businesses a third ready to wear or jewelry at Neiman Marcus is double digit very few luxury brands will tell you that a third of their business is ready to wear and more than 10 % of their business is in jewelry so we really are part of what the consumer is looking for wardrobing and the brands want that access because they can access the customer directly but there's a customer who they don't access, which is loyal to us. I think the customer who's loyal to us, they really are looking for wardrobing. They're looking for an advice that is not biased by any brand. It's what's right for you for the occasion that you're looking for.

53:35And so I think that that reason of being is clearly there. I think we all have to rethink and reimagine what the business model looks like. And to me, step one is to get us to emerge and to get us back on the saddle with the right liquidity, the right balance sheet. But stabilizing the business is not the ambition. It's reimagining it. And so we haven't fully fleshed out. But I'll tell you that to me, there's five ingredients that we're going to amplify. One is the collection. I think that multi-brand retail has the ability to identify which brand is emerging and within a brand, what's going to sell.

54:20Because we have this wealth of information and we can spot trends much faster than what the brands can spot in terms of where is the reaction from the customer. So our ability to give to the consumer a collection that is really the right one for them. And that's where differentiation is important because the consumers are different. I think that's really important to us. And our business is concentrated with the top luxury brands. But bringing that newness and finding the next emerging brands is very important. I think the second one is the curator. And that's probably the most important and the most proprietary is having those sales associates who get to know you, get to know your family and really accompany you in everything that you're looking for from gifting, self-purchase across all categories.

55:10And again, with the notion of knowing what you like, but then inviting you to stretch and discover what you don't know you like. And I think that those two are very important. We can do this better. I think technology can help us be more predictive, can help us personalize better. But I think it's fundamentally a business that is driven by human being the merchants or the sales associates. And it's really about empowering them with more tools to do things with more accuracy and where the art of luxury meets the data science. I think the third one is the experience. And I think that's one where I would imagine the most reimagination.

55:53The experience in store, we see that the customer wants to buy, but the experience of purchasing is actually equally important to them. And the younger generation is very much asking to have an experience in the store. The fourth one is one that Saks had made good progress on. It's what I call the art of view. It's this personalization that allows us to talk to you as a customer, really with your needs. And I think that today we are at the beginning of when you call the customer service or when you get an email after your purchase, that really becomes tailored to you. And I think that the human doesn't need to be part of that.

56:38But the connectivity and knowing that what shows up on your landing page is what you're likely to like. I think we are at the beginning as a world to have the technology that can transform that and as an industry to embrace this. And if you go back in time, multibrand retail and Neiman in 1999 launched digital e-commerce, that innovation should come from luxury multibrand retail. And that's one that we want to own. And the fifth one is really talent. And we need to be an organization where people want to be, where they want to belong. And when we make fast decisions and when we fail, we learn and we repeat better.

57:24But I think there's a transformation that is at the service of the customer, needs to have a very strong culture, because the pace at which we're going to change, the pace at which we're going to embrace technology, for me, that reimagination, it's only possible if people are united together, work well together. And so there's a lot of things we have that go from reimagining our loyalty program, which neither Sachs nor Neiman or Bergdorf have touched. And I don't know any program in retail that is really reimagined. And I think we can leapfrog with something that is working, that is good to great, to being something that is really leapfrog.

58:09So many more things there. And I would say that we look at our future in three phases. This year is about stabilizing the business, which we've done by getting the inventory, regaining the customer who didn't shop with us during the holidays when we had less inventory and getting the cost out. And then the next two years is starting to selectively choose where in those five elements we make a difference and demonstrating greed, choose that this model can be different. And then come sometime in 28, 29, 30, really reimagine, because I think the only way we can be delivering on our promise that we delight the customer and we have access to that customer is if we evolve.

58:56There's no other way. And my main message is the prerequisite to that is that we need to be profitable and our growth needs to be profitable. And that is the discipline we have internally. And that is what every conversation I'm going to have with brands is we cannot do things together that deteriorate our profitability. And if we grow, you and us need to be profitable. And the more we grow, the more the industry will benefit because we are smaller than when we were pre-merger. And the good news of that is that all growth is going to fuel growth for the entire industry and specifically the small brands.

59:34And that's the excitement of what lays in the future.

59:37Geoffroy Van Raemdonck: There's one other topic I just wanted to touch on quickly, which is, you know, Saks Global as a entity. even having reduced the retail footprint, is a really important player in the industry. And you've said to me previously that being profitable as a business is not enough. You want to play a real role in the industry. What do you see as the role of Saks Global, especially given some of the reputational hit the business has taken recently, given all the trouble with the vendors, particularly the smaller vendors that make a retail experience exciting. I mean, what can SaaS Global do to kind of be a more constructive player in the industry?

1:00:23I think we've been blessed that the brands have really supported us through this and have adopted all the behaviors that almost forget about the past. Because when brands decide that they're shipping to you, that they're giving you exclusive capsules. We're having many conversations about big projects of activations. I think that to me has shown that we've been blessed that the brands are recognizing that we play an important role and want to be there to support us. And I'm extremely grateful and I take that as an enormous gift. But I do hear your responsibility and I think we have more to continue to do with the emerging brands and the next generation.

1:01:09And so there's a lot of thoughts that I have about what is the role we have with emerging talent. So we've been sponsoring the Fashion Scholarship Fund for many, many years. How do we help the next generation of designers to be groomed and be inspired? How do we help some of the young brands to have access to us, to our stores, but also to our intelligence? Because we can guide them in terms of insight. So I do think that it benefits us to do this, but it's also part of our responsibility, given the gift that we've received of so much support. And that to me is something we owe in a give back.

1:01:54And I think every leader in the industry has to think about how do they give back to the industry. And for us, the best way is supporting the next generation of talent.

1:02:05Geoffroy Van Raemdonck: Just one final question, Geoffroy, because we're almost out of time. I'm curious, you've been through this kind of process before. It comes with a lot of pressure and expectation. This experience, I think in particular, has been a high pressure one. And what have you learned about leadership under pressure, under the industry spotlight at such a pivotal retailer, not just within the U.S., but globally for our industry? I mean, what lessons have you learned that you'll take with you from these past four pressure filled months? So there's two lessons that I would say as I was hearing you. The first one is you need to make decisions based on your moral compass.

1:02:52And so for me, the moral compass has always been, let's save as many jobs as we can and preserve those and put ourselves in a position where we're going to create more jobs in the future. And let's preserve the open to buy. We buy more than$3 billion at cost in the industry. That is really important for all the brands in the world. but specifically for small brands. And so if you put that vision that we're here to exist because we are the service of our associates, of the brands, and ultimately the customer, then the decisions we've made, and they were not easy, and the most difficult ones were closing stores or closing lines of businesses.

1:03:35You do them because you have your moral compass. And I think it's very important in life to know what is your purpose and how are you going to make decisions? And when faced with adversity, how do you sleep at night? And you sleep at night if you've made a decision that supports what is your stated ambition. And then the second one is we all need to make faster, better decisions. And better is not that it needs more information. But when I look at the decisions we've made in three and a half months, we've made decisions that you typically make probably in three and a half years. And so I will take this that I want to do more decision and faster decision go forward, because that's really, I think how you win in the industry is by making decisions.

1:04:24It doesn't matter that they were all right. I'm sure that there's many decisions that later on will say, oh, if I had known, I would have done it differently. But it really, the speed of decision is something that I'm reminded. And as a leader, using our experience and our intuition is very important as well.

1:04:41Geoffroy Van Raemdonck: Well, yeah, I think it was Billie Jean King who said pressure is a privilege. And you've been operating under that mindset, I guess, for the last few months. I mean, thank you very much for the time you spent with Kat and me today. It's been extremely illuminating and enlightening just to understand and unpack the strategy that I think the whole industry has been waiting to hear. So thank you very much for your time and for all of your insights. Thank you for the opportunity. We care deeply about everyone in the industry. And I think the important element is for everyone to hear firsthand our process and the humble journey that we're going on.

1:05:22And I think transparency is what we owe to all the constituencies. So thank you for having me today. Geoffroy, thank you so much. And we're so excited to see where Saks goes from here.

1:05:33Geoffroy Van Raemdonck: Thank you, Geoffroy. Thank you, Kat.

1:05:53Business is booming. But you know what really helped? Zero. the accounting platform for small businesses. I used to think spreadsheets were just part of it. Ugh. But real-time cash flow? Wow. Invoices that chase themselves? Even better. Books that automate? That's a big one. And I can keep track from my phone while I get the job done. No spreadsheet in sight. What a life. Do right by yourself and your business and search XERO for your free trial. Conditions apply.